UWF13
Occasional Visitor

Is it the right time to buy a house? I used to live in an apartment, and I realized I wasn't ever going to save any money to buy a house. I decided to move in with/rent a room from a friend so I could save money. He is doing some renovation on the house, so we all have to move out. I have $30,000 sitting in a high yield personal savings account to which I'm currently contributing $1500 every month too. I currently owe $29,000 in school loans. I graduate with my masters in 1 year and after that I am unsure if I want to stay in the area, but I know I wouldn’t move right away. It would likely be at least 18 months from now if I move at all. I am unsure should I buy a house and rent out a room to a roommate or just rent a room from another person from my base. It would be nice to have a house that I call my own, but I know it’s a lot of reasonability and I stay very busy between work and school right now. If I buy a house, I am unsure how much I would put down because I would like to have some backup savings. I know would have to pay PMI and it would be harder to down school loans, but I would be building equity. If I rent a room again and I could theoretically save another ~$20,000. So, I could put $40,000 down on a house sometime next year, leave $10,000 in savings and no PMI or put $10,000 down on a house sometime next year, pay off school loans, leave $10,000 in savings and pay PMI. I do know my PMI would be less than school loan payment.

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Answers (1)

Answers (1)

UWF13,

That is a question that all homeowners at one time or another have asked.  Let me first commend you on your disciplined savings habits.  I love to hear that you are saving money each month and that you are actively paying down your student loans.  Also, congrats on getting your master’s degree in 1 year…that is amazing!!

As you make this buying/renting decision, let me give you a few things to think about.  Your decision should be based on your overall readiness for home ownership as well as the amount of time you plan to keep the home.  Here are a few benefits of renting vs. buying that you should consider.renting.jpg

 

While not a single factor can make this decision for you, ask yourself these questions and they should help guide your decision.

  1.  Am I in this for the long haul? 
    • USAA believes that you should keep the home a minimum of 3 years and even longer in some cases.  While no one has a crystal ball on housing market conditions, an unexpected fluctuation in your home value can change the venture from a money gainer to a money loser very quickly.  If you consider your potential 18 month move schedule, this one is important to consider.  Also, even if the market goes up a bit, you might not have enough equity built up in just a few years to even cover closing costs and realtor fees when you decide to sell the home.
  2. Are you currently tracking your spending and sticking to a budget?
    • It sounds like it, but keep in mind that owning a home has different expenses than renting.  When you rent, you can easily budget the rent each money but with a home, you need to be able to be diligent to save money for home repairs.
  3. Will buying the home cause you to not meet other financial goals?
    • Remember that retirement is one of the largest financial bills you will ever pay. One day, we all desire work to become optional.  At USAA, we believe that you should start early on your retirement savings and stay committed by putting at least 10% of your income towards retirement savings.  If buying this home will cause you to put savings for retirement on pause, it might not be the best decision for now.
  4. Can you afford the costs related to home ownership?
    • When the roof fails, and the hot water heater goes out, you will be on the hook to pay those bills.  Can you?  Also, the purchase price of the home is not the only thing to consider.  Also consider taxes, insurance, HOA fees, etc.
  5. How is your credit? 
    • Your overall credit history and score will contribute to qualifying for a mortgage and obtaining a good interest rate.  Do you qualify for a VA loan?  If so that is something to consider.
  6. Do you have 3-6 months of emergency savings?
    • Make sure you have at least 3-6 months of your basic living expenses set aside in a safe account.  If you don’t have it, you might not be able to afford those homeowner emergencies that often arise.  In that case, it might make more sense to rent while you save and get on a better financial footing.
  7. Is your income secure?
    • If you lose your job, the mortgage company still expects you to pay your mortgage and the local government still want their taxes.  If you rely on a bonus to pay for your mortgage, you might want to consider renting or adjusting your price range of your home purchase to fit within your normal budget.

We’ve all heard stories about that person who bought a home in a housing boom and sold it 2 years later for a profit.  However, in my experience, most people who own homes for a short period of time lose money on the transaction.  That was my case when I was stationed at Eglin AFB.  The military moved me to Las Vegas after only owning my home for 18 months and I became a reluctant landlord.  The market had taken a downturn and I could not sell.  However, even without that downturn, I did not even have time to build enough equity to even offset the realtor costs. 

 

It took 6 years for the market to recover to the point to where I could sell the home.  But, it did not recover to my purchase price.  I fully understand the lure of home ownership, but I wish someone had walked me through the 7 steps above before I made that purchase.  I believe my decision would have been different but, only you can answer them for yourself. 

 

Best of luck with your upcoming decision.